CynergisTek Reports Fourth Quarter and Full Year 2018 Financial Results

Austin, Texas – March 27, 2019 – CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in healthcare cybersecurity, privacy and compliance, today announced financial results for the fourth quarter and full year ended December 31, 2018.

Financial Highlights for the Fourth Quarter and Full Year of 2018 Include:

Revenues for the fourth quarter were $18.6 million, compared to $18.7 million for the same period of 2017. Revenues for the full year were $71.1 million compared to $71.6 million for the same period of 2017.

GAAP net income for the fourth quarter was $1.3 million, or $0.14 per basic and $0.13 per diluted share compared to a net loss of $(1.6) million, or $(0.17) per basic and diluted share for the same period of 2017. GAAP net income for the full year was $1.9 million, or $0.20 per basic and $0.19 per diluted share compared to a net loss of $(0.4) million, or $(0.05) per basic and diluted share for the same period of 2017.

Non-GAAP adjusted EBITDA, after adding back stock-based compensation and change in valuation of earnout, was $3.7 million in the fourth quarter of 2018, compared to $2.5 million for the same period in 2017. Non-GAAP adjusted EBITDA, after adding back stock-based compensation, change in valuation of earnout and non-recurring charges related to our debt refinancing and the departure of a senior executive was $8.6 million in the full year of 2018, compared to $7.8 million for the same period in 2017 after adding back stock-based compensation and change in valuation of earnout.

Non-GAAP adjusted earnings per share for the fourth quarter 2018 was $0.34 per basic and $0.33 per diluted share, compared to $0.21 per basic and $0.20 per diluted share for the same period of 2017. Non-GAAP adjusted earnings per share for the full year 2018 was $0.72 per basic and $0.70 per diluted share, compared to $0.64 per basic and $0.60 per diluted share for the same period of 2017.

Recent Operational Highlights Include:

Sold Managed Print Service division on March 20, 2019 for $30 million dollars allowing CynergisTek to become pure play cybersecurity company

Accelerated Security revenue with growth of 20 percent year over year

Created three new strategic partnerships with software vendors focused on generating new service offerings and revenue growth

“2018 was another successful year for CynergisTek where we strived to be the trusted partner in healthcare security, privacy, and compliance,” said Mac McMillan, President and CEO of CynergisTek. “We attribute the growth in cybersecurity services to the increasing security threat landscape and incidents occurring in healthcare. The significant growth in professional services is due to the cybersecurity workforce shortage that exists across all industries but even more so in healthcare. 2019 we will continue to see the market demand increase for these types of services, as healthcare cannot find and retain the necessary resources to keep up with increased security threats. Our growth was only possible because of the dedication of our staff from the back of the house to the front of the house.”

For the Three Months Ended December 31, 2018 Compared to the Three Months Ended December 31, 2017

Revenue decreased by approximately $0.1 million to $18.6 million for the three months that ended December 31, 2018, as compared to the same period in 2017. Security related revenue increased 30% to $7.0 million offset by a 13% reduction in managed print related services related revenue to $11.6 million.

Cost of revenue was $12.1 million for the three months ended December 31, 2018, as compared to $12.9 million for the same period in 2017. Payroll and benefits related to the increased Security revenues offset equipment costs that decreased by approximately $1.6 million in 2018, directly as a result of the decrease in equipment revenues from copier fleet refresh activities.

Gross margin was 35 percent for the three months ended December 31, 2018 compared to 31 percent for same period in 2017. This increase was largely due to the additional contribution from the higher margin security revenue this quarter.

Sales and marketing, and general and administrative expenses were comparable year over year at $3.1 million for the three months ended December 31, 2018, compared to $3.5 million for the same period in 2017.

Net income was $1.3 million for the three months ended December 31, 2018, or $0.14 per basic and $0.13 per diluted share. The 2018 net income includes a $0.4 million charge for the revalued contingent earn-out liability in connection with the acquisition of CTEK Security, Inc. This compares to a net loss of $(1.6) million, or $(0.17) per basic and diluted share in the same period of 2017. The 2017 net loss included the $1.4 million charge for the revalued contingent earn-out liability in connection with the acquisition of CTEK Security, Inc. and an income tax expense of $1.5 million related to the revaluation of deferred taxes due to the change in tax law.

Non-GAAP adjusted earnings for the three months ended December 31, 2018 was $3.3 million, or $0.34 per basic and $0.33 per diluted share, compared to $2.0 million or $0.21 per basic and $0.20 per diluted share for the same period of 2017.

For the 12 Months Ended December 31, 2018 Compared to the 12 Months Ended December 31, 2017

Revenue decreased by approximately $0.5 million to $71.1 million for the 12 months ended December 31, 2018, as compared to the same period in 2017. We increased our cybersecurity services revenues by approximately $3.5 million as expected. Our office equipment, hardware & software resales grew by approximately $1.9 million due to customer needs to refresh their print equipment. Offsetting these increases, managed service revenues were approximately $5.9 lower in 2018 due primarily to nonrenewal of long-term managed print related contracts.

Cost of revenue was $50.2 million for the 12 months ended December 31, 2018, as compared to $50.7 million for the same period in 2017.

Gross margin percentage remained steady at 29% of revenue for both 2018 and 2017. The negative impact from the lower managed print service revenue was offset by the benefit from the increased security related services revenue which carries a higher margin.

Sales and marketing, and general and administrative expenses were $13.8 million for the 12 months ended December 31, 2018, as compared to $13.4 million for the same period in 2017.

Net income was $1.9 million for the 12 months ended December 31, 2018, or $0.20 per basic and $0.19 per diluted share. The 2018 net income includes a charge of $0.4 million from the revalued contingent earn-out liability in connection with the acquisition of CTEK Security, Inc. and $0.7 million in non-recurring charges related to our debt refinancing and the departure of a senior executive. This compares to a net loss of $(0.4) million, or $(0.05) per basic and diluted share in the same period of 2017. The 2017 net loss included the charge of $1.4 million from the revalued contingent earn-out liability in connection with the acquisition of CTEK Security, Inc. and an income tax expense of $1.5 million related to the revaluation of deferred taxes due to the change in tax law.

Non-GAAP adjusted earnings for the 12 months ended December 31, 2018 was $6.9 million, or $0.72 per basic and $0.70 per diluted share, compared to $6.1 million or $0.64 per basic and $0.60 per diluted share for the same period of 2017.

The reconciliation of GAAP to non-GAAP information can be found in the tables at the end of this release and provide the details of the Company’s non-GAAP disclosures and the reconciliation of non-GAAP information.

A replay of the call will be available from 5:00 p.m. ET on March 28, 2019 to 11:59 PM on April 4, 2019. To access the replay, please dial 1-844-512-2921 from the U.S. and 1-412-317-6671 from outside the U.S. The PIN is 2251350.

About CynergisTek, Inc.

CynergisTek is a top-ranked cybersecurity firm dedicated to serving the information assurance needs of the healthcare industry. CynergisTek offers specialized services and solutions to help organizations achieve privacy, security, and compliance goals. Since 2004, the company has served as a partner to hundreds of healthcare organizations and is dedicated to supporting and educating the industry by contributing to relevant industry associations. The company has been recognized by KLAS in the 2016 and 2018 Cybersecurity reports as a top performing firm in healthcare cybersecurity, as well as the 2017 Best in KLAS winner for Cybersecurity Advisory Services.

Forward Looking Statements

This release contains certain forward-looking statements relating to the business of CynergisTek that can be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “may” or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, including uncertainties relating to product/services development, long and uncertain sales cycles, the ability to obtain or maintain proprietary intellectual property protection, market acceptance, future capital requirements, competition from other providers, the ability of our vendors to continue supplying the company with equipment, parts, supplies and services at comparable terms and prices and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our Form 10-K and Form 10-Q filings with the Securities and Exchange Commission, which are available at http://www.sec.gov. CynergisTek is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.